Project Sponsor The Project Sponsor must be in good standing with all Commission programs and policies.

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1 EXISTING LANGUAGE: 4.17 REQUIREMENTS FOR REHABILITATION PROJECTS A Rehabilitation Project is defined as existing use-restricted housing that consists of the rehabilitation of 80% or more of the housing units that exist in the Project prior to rehabilitation. The number of rehabilitated units must be 75% or more of the total units in the project. A New Production Project is defined as new construction, the creation of new affordable units through the adaptive re-use of an existing non-residential building; or the conversion of existing market-rate units to use-restricted affordable units. A Rehabilitation project that does not meet the new vs. rehab unit percentage thresholds outlined in the Rehabilitation definition above (e.g. a project comprised of 40% rehabilitated units and 60% new construction units) is considered a New Production Project. All projects that meet the definition of Rehabilitation must comply with the following requirements regardless of project location. A project that meets the Rehabilitation definition but does not meet the Minimum Threshold Requirements outlined below will not qualify for funding through the 9% Tax Credit program Project Age Project must have placed in service at least 20 years before the year of Application. Placed in Service is defined as the date of the original Certificates of Occupancy or the date the last substantial rehabilitation was completed. Applicants must submit the most recent Certificate of Occupancy or Temporary Certificate of Occupancy for the project to document the age of the project Project Sponsor The Project Sponsor must be in good standing with all Commission programs and policies Feasibility as a 4% Tax Credit/Bond Project Projects that are feasible as a 4% Tax Credit/Bond Deal will not be funded with the 9% credit. The Applicant must submit financing plans that show the project structured as both a 9% project and as a 4% tax credit/bond project. The financing plans must demonstrate the quantitative and qualitative tradeoffs between the two scenarios. A statement that the project has a funding gap as a bond project alone will not be acceptable. The determination that a project is not feasible as a 4% Tax Credit/Bond Deal is at the sole discretion of the Commission. Applicants must submit a 4% tax credit/bond financing plan by completing the following forms included in the LIHTC Rehab Addendum: Combined Funders Application Forms 6D, 6E, 7 LIHTC Addendum LIHTC Rents and LIHTC Operating Pro Forma A narrative explaining the qualitative and quantitative differences An explanation of the primary reasons the project is not feasible using the 4% credit (2)

2 Recapitalization of existing 4% Tax Credit/Bond Projects A Project originally financed with 4% tax credits and tax-exempt bonds is not eligible for recapitalization in the 9% program unless it receives preapproval from the MHCF Director in advance of submitting the Application. A request for preapproval must be submitted to the Commission at least 60 days prior to the published application deadline Capital Needs Assessment (CNA) All Rehabilitation projects must submit a professional, independent, third party Capital Needs Assessment (CAN) with their application. The purpose of the CNA is to determine a project s physical capital needs over the next 20 years based on the observed current physical conditions of the project. CNA must identify deferred maintenance; physical needs; the age, useful life and remaining useful life of key components; building material deficiencies and material building code violations that affect the property use; structural or mechanical integrity, and future physical and financial needs. The CNA must be the basis from which the scope of work for the project has been developed and the basis on which any capitalized or annual contributions to the replacement reserves are based. If 100% of the units have not been inspected, the CNA must include an explanation that includes any assumptions about areas that were not inspected and the reasons for making those assumptions. Applicants must also complete the Property Conditions Summary Form in the LIHTC Rehab Addendum using the information from the CNA Minimum Rehabilitation Threshold A project applying to the 9% Program is expected to use the recapitalization opportunity to extend the life of the project by at least 20 years. A minimum of $40,000 in hard construction costs per unit must be included in the development budget and supported by a 3 rd party Capital Needs Assessment. The Hard Construction Costs referenced above may not include any amount attributable to the Rehab Contingency or sales tax Additional Low-Income Housing Commitment If the project has an existing Commission Regulatory Agreement, the Additional Low-Income Housing Commitment in the new Tax Credit Regulatory Agreement will be determined by comparing the weighted average of the low-income set-asides in the existing Regulatory Agreement to the available set-aside options under Allocation Criteria 6.1. If the weighted average of the existing low-income set-asides is less than 40% AMI in Higher Income Counties or 42% AMI in Lower Income Counties (these are the weighted averages of the current 60 point options), the project will be required to choose less restrictive set-asides on the new Regulatory Agreement, to be filled through attrition. If the weighted average of the low-income set-asides in the existing Regulatory Agreement is greater than 40% AMI in Higher Income Counties or 42% AMI in Lower Income Counties, the Applicant may (2)

3 choose equivalent or more restrictive set-asides under Allocation Criteria 6.1. These may also be filled through attrition. Rehabilitation projects that do not have an existing Commission Regulatory Agreement will also be allowed to meet their selected Additional Low-Income Housing Commitment through attrition. These projects should submit evidence of their existing use restrictions with the Application. PROPOSED NEW LANGUAGE: 4.17 REQUIREMENTS FOR REHABILITATION PROJECTS A Rehabilitation Project is defined as the acquisition and renovation of existing use-restricted housing.. If the Project has multiple sites each site must have units to be rehabilitated. Projects Not Qualifying under Section Preservation and Recapitalization include: 1. The new construction of a project in its entirety 2. The creation of new affordable units through the adaptive re-use of an existing non-residential building 3. The conversion of existing market-rate units to use-restricted and affordable units 4. If more than 20% of the units of an existing rehabilitation project are new construction units, the Project will not be considered as a rehab project. However, the project must still conform to the requirements of Project Age Project must have placed in service at least 20 years before the year of Application. Placed in Service is defined as the date of the original Certificates of Occupancy or the date the last substantial rehabilitation was completed. Applicants must submit the most recent Certificate of Occupancy or Temporary Certificate of Occupancy for the project to document the age of the project. Projects seeking the 4% credit with bonds may apply after year 15. Project Sponsor The Project Sponsor must be in good standing with all Commission programs and policies. Feasibility as a 4% Tax Credit/Bond Project Washington State has a growing population and an ever increasing need for affordable housing. At the same time, the portfolio of aging use-restricted housing with need of repair and/or total rehabilitation is increasing. In order to better administer the limited 9% tax credit resource, all Rehabilitation Projects in the Metro and Non-Metro areas (even those meeting the definition of At Risk ) must schedule a meeting for pre-authorization before applying for 9% tax credits. If you have not received preauthorization, the application will not be accepted. All Rehabilitation project developers are strongly encouraged to consider bonds with 4% tax credits. A smaller project may need to be combined with a new construction project or several other sites in need of rehabilitation to be feasible.

4 All meetings for preauthorization must be scheduled before October 1 or if the 1st falls on a weekend the following business day. WHAT TO BRING TO THE MEETING: Forms 6A & 6E of the Current Combined Funders Application A viable 3 rd party CNA and replacement schedule with prioritization Current population served and proposed rents. s Projects with any project-based rent subsidies should provide the proposed post-rehabilitation rents. List of current funders on the project(s) A detail of all use restrictions affecting the property(ies) Operating proforma, and current reserve account balances A narrative explaining the goals of the renovation and future use of the building(s) A narrative explaining the greatest current rehabilitation need and timing THINGS TO CONSIDER WHEN PREPARING FOR THE MEETING: Can certain needs be met by other means or temporary financing Would the project be more feasible as part of a larger/combined financing What aspects of the rehabilitation will affect future energy use and resource conservation Are other sources of funding available that could meet certain project needs Have you sought out other partnerships and other sources of funds to fill the funding gap. The determination that a project is not feasible as a 4% Tax Credit/Bond Deal is at the sole discretion of the MHCF Director. Recapitalization of existing 4% Tax Credit/Bond Projects A Project originally financed with 4% tax credits and tax-exempt bonds is not eligible for recapitalization in the 9% program unless it is determined eligible through the process noted above. Capital Needs Assessment All Rehabilitation projects must submit a professional, independent, third party Capital Needs Assessment (CNA) with their application. The purpose of the CNA is to determine a project s physical capital needs over the next 20 years based on the observed current physical conditions of the project. CNA must identify deferred maintenance; physical needs; the age, useful life and remaining useful life of key components; building material deficiencies and material building code violations that affect the property use; structural or mechanical integrity, and future physical and financial needs. The CNA must be the basis from which the scope of work for the project has been developed and the basis on which any capitalized or annual contributions to the replacement reserves are based. If 100% of the units have not been inspected, the CNA must include an explanation that includes any assumptions about areas that were not inspected and the reasons for making those assumptions.

5 Applicants must also complete the Property Conditions Summary Form in the LIHTC Rehab Addendum using the information from the CNA. Minimum Rehabilitation Threshold A project applying to the 9% Program is expected to use the recapitalization opportunity to extend the life of the project by at least 20 years. A minimum of $40,000 in hard construction costs per unit must be included in the development budget and supported by a 3 rd party Capital Needs Assessment. The Hard Construction Costs referenced above may not include any amount attributable to the Rehab Contingency or sales tax. Additional Low-Income Housing Commitment If the project has an existing Commission Regulatory Agreement, the Additional Low-Income Housing Commitment in the new Tax Credit Regulatory Agreement will be determined by comparing the weighted average of the low-income set-asides in the existing Regulatory Agreement to the available set-aside options under Allocation Criteria 6.1. If the weighted average of the existing low-income set-asides is less than 40% AMI in Higher Income Counties or 42% AMI in Lower Income Counties (these are the weighted averages of the current 60 point options), the project will be required to choose less restrictive set-asides on the new Regulatory Agreement, to be filled through attrition. If the weighted average of the low-income set-asides in the existing Regulatory Agreement is greater than 40% AMI in Higher Income Counties or 42% AMI in Lower Income Counties, the Applicant may choose equivalent or more restrictive set-asides under Allocation Criteria 6.1. These may also be filled through attrition. Rehabilitation projects that do not have an existing Commission Regulatory Agreement will also be allowed to meet their selected Additional Low-Income Housing Commitment through attrition. These projects should submit evidence of their existing use restrictions with the Application RELATED PARTY REHABILITATION PROJECTS A Related Party Transaction is defined as a sale or lease of property between Related Parties, parties Affiliated with each other or other parties with an Identity of Interest. Applicants that may have a question about whether their transaction will be considered a Related Party Transaction are encouraged to inquire with the Commission prior to submitting an Application. The following are required of any Related Party Transaction: History of Strong Asset Management The Project Sponsor must be able to demonstrate strong compliance and asset management performance on the project History of Project Reserves The Sponsor must be able to track and account for contributions to and draws upon the project s reserves. Operating and Replacement Reserve balances are expected to be transferred into the new

6 Project. Failure to adequately account for accruing operating and replacement reserves may result in a required equity contribution by the Project Sponsor. A form to track project reserve history has been provided in the LIHTC Rehab Addendum. Evidence of project reserve balances must be attached to the Application Appraisal and Value of Asset Applicants must submit an Appraisal to substantiate the value of the land and building acquisition shown in the project budget. It is expected that any equity or appreciation in value realized over time by the Project Sponsor will remain in the project as a contribution (e.g. as seller financing) Developer Fee Limitation The allowable developer fee will be restricted on related party transactions. See Section DISQUALIFICATION WAC (3)(a) The Commission may disqualify any Application that does not meet the requirements and disclosures listed in Chapter 2, the Program Limits in Chapter 3, and the Minimum Threshold Requirements listed in Chapter 4 by the Application deadline. The Applicant may be able to request this determination be reviewed using the procedures described in Chapter 12: Decisions and Reviews.